There are three common myths surrounding gold collecting. Don’t you be a victim to any of them.
An article I read recently, “The 12 Biggest Mistakes the Media Make When Covering Gold” by Gary Alexander contained some great insights for anyone looking to buy gold. In the article there were many myths that were debunked. These were the kinds of myths that often deter investors and their advisors from adding gold to their portfolios.
I feel that Alexander’s judgment is appropriate. The basis for his assessment is a New York Times column by Paul Krugman, Nobel laureate, entitled “Lust for Gold”. While I have a high opinion of Professor Krugman, unlike most of the gold community, I have to agree with Alexander when he says that Krugman has errors in his thinking when it comes to gold.
Alexander highlights the importance the media myths play in causing mainstream investors to have misconceptions about holding gold. I will be writing a series of articles to address these myths, and adding my opinions, and highlight the areas where I believe Alexander is wrong.
Myth 1: Gold is a risky investment.
One of the first things gold critics like to do to perpetuate the myth is show a graph that highlights the decline in gold prices that occurred between the years 1980 and 2000. While it is a fact that gold prices fell 69% during that period, they fail to show the rise of 560% that occurred between the years 1975 and 1980, and where they experienced an even higher increase between the years of 2000 and 2011 (618%).
The gold critics don’t want you to see those figures because they show what is true of all asset classes: gold does well during some periods and may not do so well during others. The viability of any asset as an investment can be skewed based upon an arbitrarily chosen set of data. Krugman, and gold critics like him, can make gold look like a poor investment selecting a period when it performed poorly, but when gold is looked at over a longer term he fails to make his case.
Another vital point that Krugman and his gold critic peers fail to consider is where gold fits into the portfolio of an investor. As I have previously stated in past articles, I believe gold’s correct role in a portfolio is as wealth insurance. Gold provides protection for your wealth during times of economic and political uncertainty, particularly in circumstances such as occurred during the crash of 2008 / 2009.
When you understand the importance of gold as insurance its performance in comparison to other assets becomes irrelevant. Gold’s sole purpose is to provide protection, not appreciate like many other assets are expected to. Gold never truly loses all value however, unlike many other types of insurance. You can be assured of receiving a large portion of the amount you paid for it when cashing it in, unlike the likes of term life insurance or auto and home insurances.
Gold has another advantage over other forms of insurance, and that is that it has a solid track record of 40 years, where it either appreciated or held its value for the most part.
Myth #2: U.S. gold investors are ‘bugs’
In his New York Times article, Krugman made a valid point about how concerning the recent upswing in what he termed ‘goldbuggism’ is.
Fortunately the majority of gold investors purchase gold for wealth protection and not for the potential for it to appreciate, and have no time for the politics surrounding gold bugs.
Sadly, the media has spent recent years focusing on gold’s political aspects i.e. the demand that the gold standard return and the threat of impending government bankruptcy. Many investors who have been considering purchasing gold are often confused and distracted by the political debates.
I believe some economists, like Krugman, may have developed a skewed opinion of gold as an investment as a result of the politics surrounding it. Many of these economists are followers of John Maynard Keynes, who was a very influential economist during the 20th century, and is reported to have believed that gold was nothing but a ‘barbarous relic’. In actual fact, it was the gold standard that Keynes referred to as being a barbarous relic.
Mostly liberals, these economists blame stunted economic grown on the gold standard, and even go as far as to believe that it contributed to the Great Depression. As a result they believe a return to the gold standard would be a Neanderthal move on the part of conservative politicians and economists. In comparison those in favor of a return of the gold standard believe that Lyndon Johnson’s Great Society and Roosevelt’s New Deal were only made possible by Keynesian deficit spending. And there lies the basis for much of the political division that is present today.
Gold gets caught in the middle, with controversy surrounding it from every quarter, making it appear to be a bad investment for mainstream investors. Political liberals are so focused on opposing the return of the gold standard that they are blind to the merits of gold as an investment.
For the rest of us it comes down to how advantageous gold is at protecting wealth, as it has done for thousands of years. War, politics and economic problems can all be blamed for much of what has happened through the years, but not gold. Gold is the one constant that provides us with the protection we so badly need during such difficult times.
Myth #3: Gold has no intrinsic value
According to the definition of ‘intrinsic’ as published in the Merriam-Webster dictionary you will see that this myth is entirely without merit. If it were true that gold has no intrinsic value, then the same could be said about paper currency and coins, the very things that make commerce as we know it possible.
Confidence and trust is what makes commerce possible, and the dollar is currently the most trusted of all the world’s currencies. This trust comes about because there is worldwide confidence in the U.S. economy and the fact that we are fully committed to using our national wealth to back the dollar up. That is one of the main reasons the Treasury Department and our Constitution exist today.
While the dollar’s intrinsic value is a relatively recent development, gold has been trusted by people, governments and cultures for thousands of years. Gold has survived in a way that no other currency or asset has, and perhaps when all is said and done, gold’s intrinsic value, like beauty, is in the eye of the beholder.
An article I read recently, “The 12 Biggest Mistakes the Media Make When Covering Gold” by Gary Alexander contained some great insights for anyone looking to buy gold. In the article there were many myths that were debunked. These were the kinds of myths that often deter investors and their advisors from adding gold to their portfolios.
I feel that Alexander’s judgment is appropriate. The basis for his assessment is a New York Times column by Paul Krugman, Nobel laureate, entitled “Lust for Gold”. While I have a high opinion of Professor Krugman, unlike most of the gold community, I have to agree with Alexander when he says that Krugman has errors in his thinking when it comes to gold.
Alexander highlights the importance the media myths play in causing mainstream investors to have misconceptions about holding gold. I will be writing a series of articles to address these myths, and adding my opinions, and highlight the areas where I believe Alexander is wrong.
Myth 1: Gold is a risky investment.
One of the first things gold critics like to do to perpetuate the myth is show a graph that highlights the decline in gold prices that occurred between the years 1980 and 2000. While it is a fact that gold prices fell 69% during that period, they fail to show the rise of 560% that occurred between the years 1975 and 1980, and where they experienced an even higher increase between the years of 2000 and 2011 (618%).
The gold critics don’t want you to see those figures because they show what is true of all asset classes: gold does well during some periods and may not do so well during others. The viability of any asset as an investment can be skewed based upon an arbitrarily chosen set of data. Krugman, and gold critics like him, can make gold look like a poor investment selecting a period when it performed poorly, but when gold is looked at over a longer term he fails to make his case.
Another vital point that Krugman and his gold critic peers fail to consider is where gold fits into the portfolio of an investor. As I have previously stated in past articles, I believe gold’s correct role in a portfolio is as wealth insurance. Gold provides protection for your wealth during times of economic and political uncertainty, particularly in circumstances such as occurred during the crash of 2008 / 2009.
When you understand the importance of gold as insurance its performance in comparison to other assets becomes irrelevant. Gold’s sole purpose is to provide protection, not appreciate like many other assets are expected to. Gold never truly loses all value however, unlike many other types of insurance. You can be assured of receiving a large portion of the amount you paid for it when cashing it in, unlike the likes of term life insurance or auto and home insurances.
Gold has another advantage over other forms of insurance, and that is that it has a solid track record of 40 years, where it either appreciated or held its value for the most part.
Myth #2: U.S. gold investors are ‘bugs’
In his New York Times article, Krugman made a valid point about how concerning the recent upswing in what he termed ‘goldbuggism’ is.
Fortunately the majority of gold investors purchase gold for wealth protection and not for the potential for it to appreciate, and have no time for the politics surrounding gold bugs.
Sadly, the media has spent recent years focusing on gold’s political aspects i.e. the demand that the gold standard return and the threat of impending government bankruptcy. Many investors who have been considering purchasing gold are often confused and distracted by the political debates.
I believe some economists, like Krugman, may have developed a skewed opinion of gold as an investment as a result of the politics surrounding it. Many of these economists are followers of John Maynard Keynes, who was a very influential economist during the 20th century, and is reported to have believed that gold was nothing but a ‘barbarous relic’. In actual fact, it was the gold standard that Keynes referred to as being a barbarous relic.
Mostly liberals, these economists blame stunted economic grown on the gold standard, and even go as far as to believe that it contributed to the Great Depression. As a result they believe a return to the gold standard would be a Neanderthal move on the part of conservative politicians and economists. In comparison those in favor of a return of the gold standard believe that Lyndon Johnson’s Great Society and Roosevelt’s New Deal were only made possible by Keynesian deficit spending. And there lies the basis for much of the political division that is present today.
Gold gets caught in the middle, with controversy surrounding it from every quarter, making it appear to be a bad investment for mainstream investors. Political liberals are so focused on opposing the return of the gold standard that they are blind to the merits of gold as an investment.
For the rest of us it comes down to how advantageous gold is at protecting wealth, as it has done for thousands of years. War, politics and economic problems can all be blamed for much of what has happened through the years, but not gold. Gold is the one constant that provides us with the protection we so badly need during such difficult times.
Myth #3: Gold has no intrinsic value
According to the definition of ‘intrinsic’ as published in the Merriam-Webster dictionary you will see that this myth is entirely without merit. If it were true that gold has no intrinsic value, then the same could be said about paper currency and coins, the very things that make commerce as we know it possible.
Confidence and trust is what makes commerce possible, and the dollar is currently the most trusted of all the world’s currencies. This trust comes about because there is worldwide confidence in the U.S. economy and the fact that we are fully committed to using our national wealth to back the dollar up. That is one of the main reasons the Treasury Department and our Constitution exist today.
While the dollar’s intrinsic value is a relatively recent development, gold has been trusted by people, governments and cultures for thousands of years. Gold has survived in a way that no other currency or asset has, and perhaps when all is said and done, gold’s intrinsic value, like beauty, is in the eye of the beholder.
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